In re Wells Fargo Forbearance Litigation

Background

The court considered Wells Fargo’s first motion asking it to evaluate the plausibility of the claims in the plaintiffs’ third amended complaint under Federal Rule of Civil Procedure 12(b)(6). The consolidated action alleges that Wells Fargo Bank, N.A., and Wells Fargo & Company placed residential mortgage holders into forbearance during the COVID-19 pandemic without their knowledge or consent. The complaint asserts 14 claims, including claims under the Racketeer Influenced and Corrupt Organizations Act, the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act, and various state laws. The plaintiffs seek to represent a nationwide class and six state classes. Wells Fargo sought dismissal of 11 of the 14 claims.

RICO claim

The court dismissed the civil RICO claim with leave to amend. The plaintiffs alleged that Wells Fargo, Black Knight Inc., and unidentified vendors formed an enterprise whose purpose was to maximize profits by placing borrowers into forbearance. The court held that the complaint did not plausibly allege an enterprise distinct from Wells Fargo. In the court’s view, the allegations described ordinary business activities and a commercial relationship with Black Knight, rather than a continuing organization with a distinct common purpose. The court also noted that the complaint described the alleged purpose as a scheme to defraud customers, requiring plausible allegations that all enterprise members participated in the fraud.

Unjust enrichment and implied covenant claims

The court dismissed the unjust-enrichment and breach-of-implied-covenant claims with leave to amend. The plaintiffs asserted these claims for a nationwide class but did not identify the state law intended to apply nationwide. The court found that the complaint and briefing were too vague about the applicable state law to provide Wells Fargo fair notice of the claims.

TILA claim

The court denied dismissal of the Truth in Lending Act claim. The claim alleges that Wells Fargo failed to timely credit mortgage payments. The court found that the complaint plausibly alleged that Wells Fargo owned or had repurchased at least some named plaintiffs’ loans, which was relevant to whether Wells Fargo could be sued under the cited TILA provisions. The court also found plausible allegations that payments were not timely applied, including allegations involving payments by Luis and Marisol Castro and Samara Green. A dispute about the timing of payments by Charles Johnson raised factual issues that could not be resolved on a motion to dismiss.

RESPA claims

The court dismissed the claim under 12 C.F.R. § 1024.41 with leave to amend. The plaintiffs alleged that Wells Fargo failed to provide required notices after offering forbearance programs in response to incomplete loan-modification applications. But the complaint did not allege that Wells Fargo failed to send written notice to any named plaintiff, and it was unclear which letters formed the basis of the claim. The court therefore found that the complaint did not establish that a named plaintiff had standing to bring the claim.

The court dismissed the claim under 12 C.F.R. § 1024.38 with prejudice. That regulation requires servicers to maintain policies and procedures for evaluating borrowers’ loss-mitigation applications. The court accepted Wells Fargo’s argument that the regulation does not provide a private right of action, and noted that the plaintiffs did not address that argument in their opposition.

California UCL claim

The court denied dismissal of the California Unfair Competition Law claim. Wells Fargo challenged only the claim under the statute’s unlawful prong, while reserving arguments about the unfair prong for later motion practice. The court held that the plaintiffs had adequately alleged an unlawful-practices claim based on their plausible TILA claim, which was enough for the UCL claim to survive the motion.

FCRA preemption

The court held that the state-law claims were preempted by the Fair Credit Reporting Act to the extent they regulated credit reporting, but could proceed to the extent they could be understood as unrelated to credit reporting. As a result, Counts 9, 10, 11, 12, and 13 were dismissed with prejudice to the extent they related to credit reporting. The opinion does not identify the underlying state-law claims corresponding to each of those counts in the conclusion.

Disposition

Judge James Donato granted and denied the motion to dismiss in part. The RICO, unjust-enrichment, and implied-covenant claims were dismissed with leave to amend. The RESPA claim under 12 C.F.R. § 1024.41 was dismissed with leave to amend, and the claim under 12 C.F.R. § 1024.38 was dismissed with prejudice. Dismissal was denied for the TILA and California UCL claims. Counts 9 through 13 were dismissed with prejudice to the extent they related to credit reporting. The plaintiffs could file an amended complaint consistent with the order by May 19, 2023; no new claims or parties could be added without the court’s prior consent. The order states that failing to meet the deadline would result in dismissal with prejudice of the claims dismissed in the order.